President Trump is exercising direct authority over the economy in ways that few recent presidents have, flexing his muscle over institutions, agencies and commercial sectors where executive power has long been considered unwelcome, if not altogether irrelevant.<\/p>\n
His no-holds-barred pressure campaign on the Federal Reserve, his reversal of post-war U.S. trade policy, his rejection of congressional budgetary mandates, his encroachment on private-sector companies, and his superintendence over labor market data represent an interventionist approach to the economy that\u2019s a far cry from the institutional norms of past decades.<\/p>\n
Interventionism has increased in recent years, drawing comparisons to eras of explicit industrial policy<\/a> and other methods of state management of the economy, and the trend is only getting stronger during Trump\u2019s second term.<\/p>\n \u201cPresidents [usually] steer within informal or extra-Constitutional constraints, and those are the constraints that Trump is busting through,\u201d Daniel Sargent, an economic historian at the University of California, told The Hill. \u201cTrump is transgressing decades-long norms.\u201d<\/p>\n Influence over monetary policy<\/p>\n Trump\u2019s pressure campaign on the Fed reached a new level of intensity this week when he moved to fire Fed board of governors member Lisa Cook over a mortgage fraud allegation \u2014 a claim that administration officials have directed at other political foes<\/a> of the president, as well.<\/p>\n The attempted firing is the most dramatic act of Trump\u2019s pressure campaign so far, which has focused largely on Fed Chair Jerome Powell. The president has constantly mocked Powell on social media, and accused him of mismanaging renovations of the Fed\u2019s headquarters, even ambushing the Fed chief with a new cost estimate for a facility renovation in front of rolling television cameras.<\/p>\n Behind the curtain, the White House is seeking greater control of monetary policy \u2014 specifically lower interest rates that could boost corporate profits and rally financial markets. Several of his predecessors, including former Presidents Lyndon B. Johnson and Nixon, have pushed the Fed for loose money, though less publicly than Trump\u2019s pressure campaign.<\/p>\n But Trump has taken his push a step further by urging the Fed to reduce the costs of financing the $36 trillion national debt, blurring the lines between both fiscal and monetary policy and the longstanding separation of the central bank from the Treasury.<\/p>\n If that line gets blurred enough, the roles of fiscal and monetary policy can flip, with the Fed managing the debt and Congress and the Treasury Department determining price levels, something that usually only happens in crisis periods, but that economists are growing increasingly concerned about now.<\/p>\n \u201cThis is when the Fed effectively loses its independence and becomes subservient to the Treasury out of necessity to keep the government solvent. When we get to that type of regime, it\u2019s never good,\u201d David Beckworth, a research fellow at the Mercatus Center, told The Hill.<\/p>\n Reversing 75 years of trade policy<\/p>\n While almost everyone in Washington bemoans the national debt, solvency concerns are significantly alleviated by massive new amounts of tariff revenue \u2014 another economic arena where Trump is exerting near-unilateral authority.<\/p>\n Bulldozing 75 years of both U.S. trade rhetoric and policy, which has been centered on internationalizing production and opening up foreign markets, Trump\u2019s tariffs are bringing in more than $20 billion a month and could reduce deficits by $4 trillion over the next decade, according to the Congressional Budget Office.<\/p>\n Former Presidents Reagan and Kennedy both had protectionist trade policies, but Trump\u2019s transactional, one-off trade deals are a break from precedent and often a reflection of personal preference.<\/p>\n \u201cIn the context of Congress\u2019s utter incapacity to balance the federal budget, I\u2019m increasingly [thinking] that high tariffs are here to stay, [and] that a Democrat, say in 2029, is not going to reverse Trump\u2019s tariff policy, because the federal government won\u2019t be able to afford to,\u201d Sargent said.<\/p>\n Trump started his trade war in his first term, and it was largely maintained by the Biden administration. Trade experts have described this disassembly of the U.S.-led global trade order as \u201cillegal.\u201d<\/p>\n \u201cWe are violating rules which American foreign policy and trade policy tried to persuade other countries to adhere to for 75 years,\u201d Harvard economist Robert Kennedy told The Hill in 2023<\/a>.<\/p>\n While good for revenue, the about-face on trade has a major potential downside, jeopardizing U.S. treasuries\u2019 status as the global safe-haven asset and dragging down the value of the dollar, which is down more than 11 percent since Trump took office. A capital flight following the launch of the April 2 \u201creciprocal\u201d tariffs sent bond yields soaring, something that could happen again if the Fed kowtows to Trump\u2019s demands for lower rates.<\/p>\n International reserve currencies like the U.S. dollar have long been understood to go hand-in-hand with trade deficits, which the U.S. now appears to be in the process of reducing<\/a>.<\/p>\n Grabbing the power of the purse through impoundment<\/p>\n Trump has also grabbed Congress\u2019s purse strings in addition to scaling back the executive through a cost-cutting initiative carried out by the Department of Government Efficiency panel, formerly led by Elon Musk.<\/p>\n On his first day in office, Trump blocked Congressional funds for investments to modernize automobile production and move the sector away from century-old internal combustion engine designs.<\/p>\n The White House said<\/a> this was to \u201celiminate the \u2018electric vehicle mandate\u2019\u201d and \u201cpromote consumer choice,\u201d though less than 1 percent<\/a> of American cars on the road are electric. Democrats called the funding freeze<\/a>, which applied to more economic sectors than cars, illegal.<\/p>\n In his first week, Trump paused \u201call federal financial assistance\u201d \u2014 a sweeping order that affects $3 trillion of funding, worth about 10 percent of U.S. gross domestic product.<\/p>\n \u201cFederal agencies must temporarily pause all activities related to obligation or disbursement of all Federal financial assistance,\u201d the White House ordered<\/a>. The purpose of the pause was to \u201cprovide the Administration time to review agency programs.\u201d<\/p>\n The trend is continuing. Just this week, Trump\u2019s Justice Department asked the Supreme Court<\/a> to pause a judicial order to spend $12 billion in foreign aid approved by Congress.<\/p>\n Aid groups blasted the move, saying it undermines Constitutional checks and balances as a form of overreach.<\/p>\n \u201cDangerously, this administration\u2019s actions further erode Congress\u2019s role and responsibility as an equal branch of government,\u201d said Mitchell Warren, director of the AIDS Vaccine Advocacy Coalition, in a statement.<\/p>\n Flexing over economic data<\/p>\n Following a disappointing July jobs report, Trump unexpectedly fired the statistical chief at the Labor Department, accusing the agency \u2014 without any evidence \u2014 of producing \u201crigged\u201d employment data.<\/p>\n The economics field exploded<\/a> at the decision, with economists on the left and right condemning the firing.<\/p>\n Although the report included substantial downward revisions in May and June, the unemployment rate is still at a relatively low 4.2 percent and economists see the labor market as generally \u201cin balance<\/a>,\u201d albeit at a slower pace of job creation.<\/p>\n